Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Sunday, 6 April 2014

SQM's Research is vindicated

When SQM Research predicted back in September last year that Sydney dwelling prices would rise by 15-20% in 2014, and possibly by significantly more, there were more than a few raised eyebrows.

sydney dwelling prices

Source: SQM Research

Some went so far as to be directly scornful. Yet, given the fundamentals of the market at that time, the underlying logic of the prediction was sound enough and SQM will once again likely prove to be pretty close to the mark.

Dwelling prices in Sydney had under-performed household income growth for almost a decade, and, crucially, interest rates appear set to remain at what are historically extremely low levels throughout the year and potentially well beyond.

Notably Australia's official cash rate will remain materially below where it was during Sydney's last property boom through to early 2004 for some time to come yet (click chart).

Even now in April, the Reserve Bank rhetoric suggests that the first rate hike is potentially some way off, particularly since inflation is expected to be consistent with the Reserve Bank's stated 2-3% target over the next two years.

In other words, interest rates are not going to be the handbrake which stops the current Sydney property boom in its tracks.

Rather, the music is only likely stop in this Sydney property market cycle once buyers deem yields to have fallen too low, such as they eventually did in Q1 2004.

Auction clearance rates in Sydney remain remarkably high, the levels of stock on the market remain significantly lower than where they were a year ago in spite a flurry of vendor activity, and prices have continued to rise.

RP Data's index shows Sydney outperforming the rest of Australia over the past year, and indeed the 5 Capital Cities price growth has largely been driven by Sydney's dwelling price growth itself, in concert with broadly equivalent price activity in Melbourne (click chart).

Whether 2014 price growth in Sydney ends up being 10%, 15% or even 20%, SQM's logic will prove to have been broadly accurate. For what it's worth, below are the year to date figures as reported by RP Data (click chart).

We're only a week into April and it already looks likely that another month of gains will be recorded in the harbour city. And if you take the view that such indices are inclined to lag, then SQM's prediction looks very much to be in decent shape.

In any case, certain locations are beginning to record blistering results, including Sydney's lower north shore

And you can probably begin to add parts of the Campsie/Canterbury/Bankstown sector of the market to that. Meanwhile, the popular inner west suburbs closer to the Central Business District have been flying for some years now. 

When I discussed Sydney's real estate prospects in a brief chat with SQM's Managing Director Louis Christopher, he likened Sydney dwelling prices "to a high PE stock", which I thought was a worthy analogy.

Sydney's property will likely continue to trade at a premium to dwelling prices elsewhere in Australia since massive population growth and the sheer intensity of demand for inner suburb real estate factors in that Sydney will be a solid city for property owners for generations to come.

The population of Sydney is expected to grow to some 8 million over the coming decades.

I've spent plenty of time in other high-density cities including London, Hong Kong and Singapore and observed with interest the appreciating prices of well-located real estate.

Those who plan to own well-located, desirable property in Sydney over the coming decades appear set to be very happy with the outcome.